Sunday, May 05, 2013

Three weeks ago the new chancellor, 39-year-old Tory George Osborne, presented a budget that promised to get Britain’s fiscal house in order with sharp cuts in spending, coupled with tax increases. It landed in the midst of a heated debate across the industrialized world about how to best get the economy back on track. Osborne and his boss, Prime Minister David Cameron, have come down firmly on one side of this debate, hoping that a major effort to reduce the deficit will reassure bond markets and investors that Britain is a safe and compelling place to put their money.

Leaving aside the economics of this, what struck me as I spent time in Britain last week was the politics of deficit reduction. Having announced major cuts in popular programs, plus hefty tax increases, the Cameron government might be expected to be losing popularity by the day. But in fact the budget was well received by the public—though attacked ferociously from the left—and the governing coalition has actually inched up a bit in the polls.

There are several possible reasons for this. Cameron has played the public role of prime minister exceedingly well, making a pitch-perfect apology for the British Army’s wrongful use of force in Northern Ireland in 1972, and handling himself on the global stage with grace and ease. It’s also true, of course, that the effect of the cuts and taxes have not yet been felt, and when that happens, the government’s poll ratings might plunge. But clearly the honesty of the budget has resonated with voters.

It’s heartening to see a government do something that it must have thought would be deeply unpopular, and then be rewarded by the public...

ZAKARIA: May day was a day of protests this week across Europe and England, France, Spain, Greece and beyond. Protesters hit the streets angry about the economy. But they are also expressing anger about austerity, the policy of trimming government expenses. With a number of politicians in the West admitting that austerity is failing, is it the end of austerity? I'm joined by two very smart economic thinkers and writers Gillian Tett from "The Financial Times" and Rana Foroohar from "Time" magazine. Welcome.

ZAKARIA: This economy looks pretty good. That is the private sector engine -- companies and people is moving pretty well. Do you think that people now feel that the government has been cutting back too much in a period of weak economic demand? In other words, are we actually witnessing a kind of shift where people are going to say, enough austerity. Let's try to actually doing it. Because I hear the academic debate, but I don't see any government policy changing.

FOROOHAR: Yeah, well, I think, you know, political gridlock in Washington is going to make it hard to come up with the kinds of spending that would actually be useful. I mean yes, I would love to see more spending on things like infrastructure and education. You've written about that. We've all talked about that. I think that's going to be difficult. But there is this push back now against austerity. We can see that it hasn't worked well in Europe and we can see that the government and public spending, the lack of public spending is a real drag on growth in this country. We just have the effect of being the prettiest house on an ugly block. You know, so we are still doing pretty well compared to others.

ZAKARIA: What does it look like in Europe, because in Europe you're actually having, you know, people like the president of Ireland saying austerity is -- led us nowhere.

TETT: We had some astonishing statements from Ireland this week about the fact that actually, it's not just about an economic union, it's about a social union, a political union and if that phrase, it really could be a lot of upheaval (ph) in the Euro zone, because the reality of the countries like Ireland, like Greece, like Italy and Portugal are getting absolutely fed up by being told by the Germans and the IMF that they have to do more austerity. You can see the results. I mean 27 percent unemployment rate in Spain. Potentially even higher, if you actually look at the numbers properly. Similar levels in Portugal and Greece. You have an entire generation that's essentially being thrown into the garbage can right now and the problem with that is they're not spending, they're not stimulating the economy, you're not seeing the kind of green shoots to the demand that you're getting in America that Rana has been writing about.

FOROOHAR: You know, I think, also, you may start to see a shift in Germany after the elections. You know, there's always been a lot of posturing on the part of Merkel and other German leaders because they want the rest of Europe to get the sense that, well, Germans will cough up money, but if you behave better, if you behave more German, if you're thriftier. So that's the stance politically she has to take to sell any kind of bailout within Germany. I think after the election, there's going to be an increasing realization that Germany has as much to lose if not more than any other European country if there is a fracture in the Euro zone. Because if you think about it, a lot of their trading partners are in the Euro zone. If they go under, Germany's export economy, which is the driver, is really going to suffer.

He immediately changed the subject to the Bangladesh disaster.

Zakaria still rails against "entitlements" (which his earlier guest Stephen Haas described as a "cancer" to no objection from anyone) but he hasn't exactly come clean about the disastrous effects of the austerity measures in Europe that "heartened him" so strongly, has he? No, today he sits there like a potted plant while the bill of indictment rolls right over him.

But then he's a card-carrying Very Serious Person which means never having to say you're sorry.

Update: Here's a reminder of another of Zakaria's Very Serious contributions to the austerity debate:

ZAKARIA: OK, let me ask - let me ask - we've got to go, but I have to ask Ann this, which is there's - there is a strong case that he has made - Obama has made, which is about Medicare. And, on that issue, I want to know whether you think it will work. Not - I know that you wish that the Democrats' took entitlement reform more seriously, and I happen to agree with you there.

But, when you ask the American people, should - are you willing to deal with the budget deficit by cutting Medicare, 78 percent say no. I mean, I don't think you can get 78 percent of Americans to agree on the time of day.

ANN COULTER: Right.

ZAKARIA: Where do (ph) -

COULTER: It's the utter irresponsibility of former Democrats. It's hard to take treats away from people, and that's what we've done. And Democrats set up a Ponzi scheme with social security and Medicare, and it's running out now. And, yes, it's very hard to take the treats away once you start giving them away, which is why it was utterly irresponsible for Democrats long dead and gone to set up these systems that could never last.

But, you know, it would be very helpful -

ZAKARIA: But will it work? That's what I'm asking.

COULTER: -- if we could get Democrats to acknowledge the system's about to go bankrupt rather than showing commercials of Paul Ryan -

ZAKARIA: But will it - OK.

COULTER: -- pushing an old lady in a wheelchair off a cliff.

Thank goodness for Chrystia Freeland, because Zakaria agrees with Ann Coulter as he admits right up front:

FREELAND: ... What it shows, actually, is that Americans don't see successful government programs as treats, which they are childish for enjoying. They see successful government programs as what the government should be doing.